One Year To Nowhere

[Expat1 971]

Oil, gold, etc are massively oversold atm, they've been hammered for quite some time now and there's too many technical divergences starting to show up(and too much pessimism by the "experts" who were bullish at the top).

Saw my gold guy today........Picked it up at around $1110(ish)

[OriZ 3,157]

A little too early to tell. Still too early to also tell if we're seeing the trend change in oil and gold I was talking about but if not, it wll come soon enough. One question though that maybe is getting answered is that this market does remember to go down when oil goes up. The reason I made the comment about the correlation earlier is because in recent months, energy stocks pushed the market up every time oil was up and seemed to weigh on it every time oil was down. But like I said a few days ago - correlations change all the time, today's positive correlation(or this week's, month's, year's etc) can be tomorrow's negative one and vice versa.

As far as gold it is easier to see how declines in the stock market might push gold up as a "safe haven".

As far as valuations, I find this to be very telling:

The extreme for cap weighted valuations was 2000. Extreme for median equity valuations was 2015. Now that doesn't always mean markets can't become even more overvalued, we've seen it happen before and even in the last few years...if investors are risk seeking, they can push an overvalued market to even higher overvaluation. But what differentiates a market that's overvalued and declines from one that becomes even more overvalued? As I've mentioned before, I believe the hinge is market internals and technicals. So even thjugh the market became somewhat overvalued long before mid 2013, that's when some of those started to break down, but only in mid 2014 to the point I would consider serious, and then of course significant further damage was done last August. This is why we are flat to down in the past year+, and this is why I believe a crash is imminent. An improvement in technicals and internals would defer the immediacy of downside concern, but would not change the bigger valuation picture on a longer term basis.

This is a chart I posted in a different forum(one actually for traders and investors) months ago, right before the August mini "Crash". I posted the updated chart here several weeks back(http://www.visajourney.com/forums/topic/577938-one-year-to-nowhere/?p=7931111). A decline towards the levels mentioned will not be some worst case scenario but a rather run of the mill completion of the current cycle that won't even bring the market back to the same undervaluation that has occured during most bottoms in the 20th century(that would require more like a 75% drop).

A look at credit spreads spells trouble:

So I actually believe January will be a very telling month(and so far the start of it is not very encouraging). Sure, there's a saying on Wall St. "as goes January, so goes the year" but that's not why. I won't elaborate right now but just due to some things I am watching(tools and indicators) I think January can give us a big clue. So basically I think a slightly negative/flat to positive January will mean a good 2016 and Hillary as pres(gag) whereas a more than 1-2% down month will mean a significantly negative 2016 and most probably a republican president.

As always I'm gonna back up what I say with charts. There's a very interesting study about re-election and how it relates to not specifically the economy, like most people believe but rather the stock market itself which is reflective of social mood. My view which tends to agree with this study is basically very simple: forget terrorism, forget illegal immigration, forget everything else. If this thing tanks in the next 11 months, dems are more than likely done for a while. If it doesn't, they'll get another term. Plain and simple.

But calling all Hillary fans - if she gets elected that's not a happy day. More likely it will be the end of her career. I do not see any possibility that this will wait another 5+ years. If this crisis waits another year to happen the person you want elected is not the person you like but the person you like least. Chances are after one term they will be done and so will their party for a while.

Breif explanation:

“The best single predictor of presidential re-election results that we found was the percentage change in the stock market during the three years that preceded Election Day,” said Goel. “Changes in stock prices had a positive, substantial and statistically significant association with incumbents’ performances in re-elections. We found that they accounted for more than a quarter of the variation in incumbents’ popular vote margins.”

The researchers studied every presidential re-election campaign in U.S. history back to George Washington’s successful bid of 1792. They found that incumbents who served during periods of rising stock prices typically do better in the elections than those who served during periods of falling stock prices.

Meanwhile, the relationship between how an incumbent performs and the changes in gross domestic product, inflation and unemployment is weaker and, with the latter two, “often insignificant,” according to the authors.

The study, posted on the Social Science Research Network (SSRN), acknowledges that a few incumbents were re-elected when the markets had declined and a few others were defeated when the markets had risen. But those margins of victory and defeat were smaller on average than when the direction of the markets and the incumbents’ fates matched.

Matthew Lampert, a Research Fellow of the Socionomics Institute and doctoral candidate at the University of Cambridge, says one of the study’s purposes is to address popular opinion surrounding elections. “We often hear people debate which presidential candidate will be better for the stock market,” Lampert said. “Our study comes to a different conclusion: that there is significant predictability in the opposite direction.”

The researchers also checked the measures that most analysts believe matter to voters, namely gross domestic product (GDP), inflation and unemployment. As it turns out, “Inflation and unemployment had no predictive value in any of our tests,” said statistician Goel. “GDP was a significant predictor in some of the simple models, but it was rendered insignificant when we combined it with the stock market in multiple regression analyses. In contrast, the stock market was a consistent indicator of re-election outcomes.”

The authors addressed the question of whether investors voted for or against incumbents simply because they made or lost money in stocks. “If rational self-interest were the basis for our results, then GDP and unemployment should have mattered at least equally,” said Prechter. “But they don’t.” Moreover, he said, “We contrasted eras when stocks were widely owned vs. hardly owned, and there was no difference in results.” Lampert concluded, “We think that the best explanation is that the trend of social mood is important in driving the valuations of both stocks and presidents.”

The findings are an important contribution for those who create elections forecasting models. “We demonstrated a counter-intuitive point about what matters, what doesn’t and why,” Prechter said.

For the full study:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1987160

Last but not least, Hussman's latest commentary, which I find to be as informative as usual:

http://www.hussmanfunds.com/wmc/wmc160104.htm

Edited January 5, 2016 by OriZ

[Expat1 971]

I'm happy with valuations at that level. 1050, 1100 is well within my value box.

[OriZ 3,157]

I'm happy with valuations at that level. 1050, 1100 is well within my value box.

Good. Cause I honestly believe that is where we're headed.

[Expat1 971]

Good. Cause I honestly believe that is where we're headed.

I believe you are right. All the dominos are lined up, just needs a catalyst or we might be in for another year of this "falling rally" BS.

[OriZ 3,157]

Saw my gold guy today........Picked it up at around $1110(ish)

I believe between oil, gold and everything inbetween a 30-50% rally from current levels is not out of the question. However, when I say from current levels does not mean it can't dip a little more first, but it does mean that that won't change the eventual target.

I believe you are right. All the dominos are lined up, just needs a catalyst or we might be in for another year of this "falling rally" BS.

I still however believe it's not going to be similar to 87 but rather to 2000-2002 and 2007-9, meaning, we will have rallies along the way, so it will take time. It's not going to be a vertical drop(although some parts of it will, like last August) but more like stair stepping.

[Expat1 971]

I believe between oil, gold and everything inbetween a 30-50% rally from current levels is not out of the question. However, when I say from current levels does not mean it can't dip a little more first, but it does mean that that won't change the eventual target.

I still however believe it's not going to be similar to 87 but rather to 2000-2002 and 2007-9, meaning, we will have rallies along the way, so it will take time. It's not going to be a vertical drop(although some parts of it will, like last August) but more like stair stepping.

LOL I'm not wanting gold to rally. I like it where it is. It accumulates faster.

It's difficult to tell where the artificial money and real money starts and stops. There were about 800 mil in buybacks last year, I'm not sure if companies can sustain that in a falling earnings environment and I believe we will see a 3-4% overall drop in earnings. Margin levels were nearly at a record in Nov but those reports are a month or so behind so there might be some margin pullback in Dec but if not that's coming. ETFs are rampant LOL, when/if they get dumped in a falling market they will take whole sectors, good stocks and bad stocks, with them. Debt markets you've covered, also very stretched.

I'm just not sure how much cash is out there to cover any real selling but the typical bear market dips and rises will only last while cash, real cash, is there to support it. I am thinking it's a weaker house of cards than it was in 2000 or 2007 and that is my basis for suggesting that this will likely be over after Q1 earnings roll in. But we shall see. I'm still calling late spring.

Edited January 6, 2016 by Expat1

[OriZ 3,157]

LOL I'm not wanting gold to rally. I like it where it is. It accumulates faster.

It's difficult to tell where the artificial money and real money starts and stops. There were about 800 mil in buybacks last year, I'm not sure if companies can sustain that in a falling earnings environment and I believe we will see a 3-4% overall drop in earnings. Margin levels were nearly at a record in Nov but those reports are a month or so behind so there might be some margin pullback in Dec but if not that's coming. ETFs are rampant LOL, when/if they get dumped in a falling market they will take whole sectors, good stocks and bad stocks, with them. Debt markets you've covered, also very stretched.

I'm just not sure how much cash is out there to cover any real selling but the typical bear market dips and rises will only last while cash, real cash, is there to support it. I am thinking it's a weaker house of cards than it was in 2000 or 2007 and that is my basis for suggesting that this will likely be over after Q1 earnings roll in. But we shall see. I'm still calling late spring.

I definitely agree about spring as I have said in the past, but also as I've said then I am just not sure it will already be over by then. I think we will get a taste of it for sure, and then a rally afterwards, but don't exclude further downside later on in the year, or even into 2017, especially if the spring one isn't as deep as we think it will be.

I wanna clarify my post from earlier when I said "everything in between" I of course was talking about only the other metals and commodities besides oil and gold. I was NOT in any way shape or form referring to the stock market. I think Gold's upside will be more modest than that of oil's. Whereas at some point during 2016 I can definitely see oil around $50 a barrel, I only see gold at $1200-1400 an ounce. Considering oil right now is in the mid 30's and gold in the mid 1000's...percentage wise of course oil's rally will be larger. But generally speaking across the board I would say 30-50%.

Edited January 6, 2016 by OriZ

[ExPatty 502]

Gold is still wildly overbought and, as historically the case, continues to be a terrible investment, notwithstanding the occasional pump and dump by Schiff and his ilk.

[OriZ 3,157]

Yes, and as both Expat and I have stated, in the intermediate to long term(a few years) gold should continue declining. However, in the very long run(more than just a few years) it will rise, and, in the short term(few months to a year or so) it should rally. It won't be a lasting bounce, but right now, gold is oversold. I fully expect to see gold at 1200+ this year. Doesn't mean it can't decline further before, or after it meets that price or both. Believe me I was bearish on gold(just as I was bearish on oil, copper, silver and other commodities and bullish on the dollar) for several years now. In fact, I started shorting gold at 1477(04/14) and only closed my position a year ago at 1184 and turned neutral on it. Now, I'm a short term bull. Very short term but nonetheless.

Edited January 7, 2016 by OriZ

[Expat1 971]

I wanna clarify my post from earlier when I said "everything in between" I of course was talking about only the other metals and commodities besides oil and gold. I was NOT in any way shape or form referring to the stock market. I think Gold's upside will be more modest than that of oil's. Whereas at some point during 2016 I can definitely see oil around $50 a barrel, I only see gold at $1200-1400 an ounce. Considering oil right now is in the mid 30's and gold in the mid 1000's...percentage wise of course oil's rally will be larger. But generally speaking across the board I would say 30-50%.

LOL no worries, i got the commodities/excluding stocks thing

[Expat1 971]

Gold is still wildly overbought and, as historically the case, continues to be a terrible investment, notwithstanding the occasional pump and dump by Schiff and his ilk.

I hear that but somehow I like gold. Since late 2014 I've liked it.

It's the shine. But that's just me. I wouldn't have touched it in '12, or '13, or '14 but last year I started buying it (1) for fun and (2) because I was out of the market most of the year, was bored, cash-heavy to the extreme, looked around and realized that there is nothing here to buy that I want anyway, and wanted to experiment with it.

Gold is very fungible in the ME and Asia, much more so than in the US, and who knows it will be useful someday. 401K withholding is maxed out anyway (in fact I jumped the limit and inadvertantly tied up perfectly good after-tax cash there), so it's not like I am shifting any critical long-term investment activity around to favor gold over anything else.

++ and the little bars make cool gifts

Edited January 7, 2016 by Expat1

[OriZ 3,157]

++ and the little bars make cool gifts

Or paper weights

[Expat1 971]

Or paper weights

LOL very shiny paper weights

Edited January 7, 2016 by Expat1

[Expat1 971]

Good. Cause I honestly believe that is where we're headed.

So im tracking from where i got out in early Dec, and so far have dodged over 7k in losses, and don't see the pain ending soon. Cap to gdp is under 115%, needs to drop another 20 or so then i'll sift the debris and see what looks attractive.

In pre-sifting the only sector that I like right now as a whole is energy, Shiller is around 11 which gives me a mild interest. Banking/financial services valuations don't look too bad, within 10% of interesting. The other sectors are at least 40% overvalued and I wouldnt invest someone else's money there. After ETF dumping starts, and it will, these are probably the two areas that I will be looking at. ETF's are going to screw us all though. That schtick ahould be outlawed bleh. It artificially inflates the stocks of bad companies and depresses stocks of good companies. Indexes don't grow, companies do.

Edited January 7, 2016 by Expat1